Monday, January 23, 2012
Rival Settlements, Rival Fees
Several reports (here and here) over the past few weeks describe a controversial decision by Judge Charles J. Barbier—the federal judge overseeing thousands of lawsuits lodged against British Petroleum (and others) for the Gulf Coast Oil Spill—to set up a fund to pay fees for the lead attorneys. Among other things, Judge Barbier's order would fund lead attorneys in his court by deducting money from awards to people who applied to the Gulf Coast Claim Facility, a no-fault alternative to the litigation, established with the assistance of President Obama, and now overseen by Special Master Kenneth Feinberg. Judge Barbier's decision raises fundamental questions about the value attorneys contribute to each others' work in large, complex lawsuits--particularly, when they must compete with a large government-created settlement fund.
Generally, these "common benefit" funds are a familiar part of complex litigation. In many cases, the sheer size and complexity of litigation often requires a court to appoint “lead” or “liason” counsel to coordinate motions, conduct depositions and manage discovery on common issues that generally benefit potentially thousands of other plaintiffs. See, e.g., In re Diet Drugs, 582 F.3d 524 (3d Cir. 2009) (approving fund for electronic document depository that organized 80 depositions and nine million pages of documents made available to every plaintiff in the multidistrict litigation proceeding); Manual for Complex Litigation, Fourth §§ 14.215, 20.312 (2004). See also Charles Silver & Geoffrey P. Miller, The Quasi-Class Action Method of Managing Multidistrict Litigation: Problems and a Proposal, 63 Vand. L. Rev. 107 (2010).
The question then becomes, "Who pays for all that work, particularly if it benefits everyone else?" The answer, in many cases, is: everyone else. Courts will levy a kind of tax, typically between 4 to 6 percent of all of the plaintiffs' recoveries, to create a reserve fund to pay those attorney's fees. See William B. Rubenstein, On What A “Common Benefit Fee” Is, Is Not, and Should Be, 3 CLASS ACTION ATT’Y FEE DIG. 87, 88–90 (Mar. 2009). The policy has old roots. See, e.g., Trustees v. Greenbough, 105 U.S. 527 (1881)(“He has worked for them as well as for himself; and if he cannot be reimbursed out of the fund itself, they ought to contribute their due proportion of the expenses which he has fairly incurred.”) In short, the idea is that those who passively benefit from big lawsuits must bear their fair share of the cost.
What made Judge Barbier’s order unusual was that it also sought to tax those who chose to participate in a no-fault alternative to the litigation, the Gulf Coast Claim Facility, overseen by Special Master Kenneth Feinberg. Parties who seek awards from the GCCF give up their rights to a lawsuit, in exchange for compensation from the Facility. The GCCF does not require that claimants prove BP is liable, only their individual damages. Accordingly, Barbier’s order does not depend on the traditional justification for a common benefit fund—that individual plaintiffs directly benefit from a common theory of liability, or some "smoking gun" unearthed in discovery. Rather, Judge Barbier’s order depends on a more indirect concept of “common benefit" work.
The Court reasoned that lead plaintiffs in the multidistrict litigation improved transparency, as well as potential awards, in the GCCF. See, e.g., In re Oil Spill by the Oil Rig “Deepwater Horizon” in the Gulf of Mexico on April 20, 2010. 2011 WL 6817982 (E.D.La. Dec. 28, 2011). For example, based on an application of the plaintiffs' counsel in the private litigation, the Court (1) ordered the GCCF to inform claimants of their right to counsel, (2) to provide translated documents, and (3) to avoid communicating directly with represented parties. The private litigants have also pressed for a more “liberal causation standard” and for “punitive damages,” which may also enhance the “settlement value of compensatory claims” before the GCCF. Id. at 2-3.
Barbier’s theory has some interesting implications for rival settlement schemes--large public funds established ostensibly for the purpose of luring people out of private litigation. (The September 11 Victim Compensation Fund and the National Vaccine Compensation Program, to name two, work similarly). On the one hand, there is no question that the existence of private litigation, as an alternative for those who consider filing with a large settlement fund, may foster competition and lead to higher settlement awards in a fund like the GCCF. But those abstract improvements are extremely difficult to quantify. After all, couldn't one make the opposite argument ? Are there cases where the existence of a large settlement fund actually increases the value of private litigation? I offer some thoughts about the law of common benefit funds, and the dynamic relationship between public settlements on private lawsuits, below.
The Law of Common Benefit Funds. There have been some analogous successful efforts by rival attorneys to collect attorney’s fees, under a common benefit theory, in class action settlements. For example, when attorneys representing objecting class members to a proposed settlement succeed, they may be entitled to a fee for the efforts expended to improve the size of the settlement. See, e.g., White v. Auerbach, 500 F.2d 22, 828 (2d Cir. 1974) (objectors entitled to attorneys fees for improved settlement); Gottlieb v. Barry, 43 F.3d 474 (10th Cir. 1994); Richard L. Marcus, et. al., Complex Litigation, Cases and Materials on Advanced Civil Procedure 594-5 (5th Ed. 2010). Although the common benefit doctrine has been limited to class actions and "quasi-class actions"--like the coordinated litigation before Judge Barbier--I suppose that one could stretch that theory to those attorneys who object to the structure of a public fund, particularly when the structure impacts someone's ability to effectively consent or to find an attorney. But see Charles Silver, A Restitutionary Theory of Attorneys’ Fees in Class Actions, 76 Cornell L. Rev. 656 (1990) (setting out conditions for the application of the common fund doctrine in class actions).
In the September 11 Litigation, for example, many attorneys represented and advised clients who had to choose between private litigation and filing a claim with the September 11 Victim Compensation Fund. A similar threshold question for many attorneys advising clients in the Gulf will be whether and how to choose between a lawsuit and a no-fault alternative like the GCCF. Thus, all attorneys, and their clients may benefit, at least theoretically, when they can choose counsel and make decisions in an informed way. Then again, courts also have been far more hesitant to apply the common benefit doctrine to cases where the shared benefit is some kind of structural reform, instead of common work that increases the likelihood of damages. Compare Geier v. Sunquist, 372 F.3d 784 (6th Cir. 2004) (denying common benefit fund “where litigants are vindicating a social grievance”) with Silver & Miller, supra (collecting cases and describing examples of common benefit work, as including "deposition of a fact witness," as well as "common pleadings, motions, briefs, depositions summaries, and document reviews.")
The Problem of Rival Government-Settlements. Courts may also be skeptical of efforts to “tax” parties for improvements in a large government-initiated settlement based on the indirect efforts of private plaintiffs' counsel in a totally separate lawsuit. For example, less than two weeks before Merck publicly agreed to pay $950 million to settle criminal and civil claims by the federal government over its marketing of the painkiller Vioxx, the private plaintiffs in a parallel Vioxx litigation filed a little-noticed emergency motion to hold back a percentage of the government's award for their own attorneys fees. The Court found that there was "an apparently insurmountable disconnect” between the private attorney's work in and the DOJ settlement fund. In re Vioxx Products Liability Litigation, 2012 WL 10548 at*3 (E.D.La. Jan 3, 2012). A decent argument could be made that the private bar’s well-developed theory of liability, scientific evidence and individualized settlements in their own cases likely contributed to the size of the government’s $950 million dollar award. But the connection wasn’t “obvious” or “direct” enough for criminal investigations launched around the same time as those private lawsuits. Id. Accordingly, the Court found that plaintiffs were already adequately compensated out of their own $4.85 billion dollar settlement with Merck.
Can A Settlement Fund Increase the Value of Private Litigation? But another interesting wrinkle to Barbier’s order is that the private attorneys who represent clients before the GCCF may actually create higher norms and expectations for any final global settlement in the multidistrict litigation taking place before Judge Barbier. Individual applicants to the GCCF, represented by counsel, act as first movers. On a daily basis, they test novel theories of damages before Special Master Feinberg. As a result, those awards may set an even higher bar for any final, global settlement accomplished in the ongoing litigation. But see Silver & Miller, supra (observing that even though most "settlement leverage" comes from the work of individual attorneys who "identify potential clients, evaluate their claims, contract with them, and file lawsuits for them," courts generally do not consider this work as "common benefit" work.).
There is some--admittedly very poor--past evidence of this phenomenon. The small minority of families who passed on the September 11 Victim Compensation Fund and sued, rather than take money from the Fund, technically made out better financially: 93 of those 96 claims were settled, for an average of $5 million, or more than twice the average payment from the special fund. Of course, that number may have been self-selecting. As the judge overseeing those settlements observed, some families with high incomes chose to sue because they believed that the Fund would not adequately compensate them. And many who opted out of the Fund also ended up paying higher legal fees and court costs, not to mention waiting much longer for money they could have received earlier and invested.
But is it that speculative that attorneys who make claims in a rival settlement fund might raise expectations and awards for those who later settle their private lawsuits? If so, how should courts weigh the value those attorneys contribute to a final settlement? Is it fair to discount awards to those filing with the GCCF, by the real, but arguably less-direct, financial benefits private attorneys have conferred on GCCF claimants? (For those of you litigating before Judge Barbier, or who have filed claims with the GCCF, I'd be interested in hearing your perspective about this).
Posted by Adam Zimmerman on January 23, 2012 at 04:32 PM | Permalink
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